RBN - Robbins & Myers

[constructive]

Robbins & Myers (RBN) is being acquired by National Oilwell Varco (NOV) for $60 cash per share.  The past few days they have slipped below $58 per share.  The estimated close date is 2/19, for an annualized return over 90%. With the market close to highs it might be a good time to put money into special situations.

 

1. The annualized return is very high. My minimum target for workouts is 30% annualized - this clears that easily.

2. It's a cash deal which I generally prefer to stock deals.

3. NOV has a $30B market cap, $1.7B cash on hand and minimal debt. Financially this $2.5B acquisition isn't a stretch at all.

4. In the unlikely event the deal fails, the downside doesn't appear too severe. RBN manufactures pumps, valves, mixing equipment and other specialized flow control products.  They trade at 17x trailing earnings and 15.3x forward earnings. They have a good growth record, high margins, good balance sheet and ROIC is healthy and inching up.

5. I don't know why the share price has declined the past few days. Short interest is surprisingly high. Generally I only do 1-2 mergers a year, the last one being Venoco (VQ) which was very profitable. In the case of VQ, I understood the market's skepticism about the CEO lining up financing. Obviously, understanding the variant view with RBN would be very helpful.

6. If the issue is antitrust, their disclosures seem fairly positive to me.  If the DOJ had serious concerns they would have pushed the close date back, and if they communicated serious concerns to RBN, the company would have disclosed them.  I don't think the oil field equipment industry is concentrated enough to block. The possible exception noted below is blowout preventers, which could be sold off without affecting the deal terms.

7. $40 per share (11.8x earnings) might be a fair price if the deal fails. If it has a 95% chance of going through, the expected value is 95% * $60 + 5%  * $40 = $59. I think these numbers are conservative.

 

Found here: http://www.sinletter.com/merger-arbitrage/

News: http://www.reuters.com/finance/stocks/RBN/key-developments

http://www.google.com/finance?q=rbn

http://finance.yahoo.com/q?s=rbn

http://www.robbinsmyers.com/

http://www.natoil.com/

 

A useful blog post: http://finance.yahoo.com/mbview/threadview/?&bn=614416c5-57d2-30c3-a815-71330d44acc6&tid=1359171934555-d67f54cd-6b64-4547-868a-1f3238406da2&mid=00002b00002b000000000000000000-bfc328e6-4aa7-4904-a0c0-6ac0ffea58b9

[rijk]

maybe this has something to do with the wide spread?

 

regards

rijk

 

http://sg.finance.yahoo.com/news/royce-binnion-wrongful-termination-claim-163100985.html

[constructive]

I really doubt that. It would be one thing if he had whistleblower status, but he's just some schmuck who's bankrupt and accused of civil and criminal fraud. Also, problems at the acquisitor are much less relevant to the deal going through than problems at the target.

[constructive]

Success. RBN and NOV received full clearance today from the US and Canada, without any conditions. RBN has traded up to $59.99.

 

http://www.heraldonline.com/2013/02/19/4630258/national-oilwell-varco-and-robbins.html

 

I bought shares at $57.76 on the 4th, for a 3.8% return, around 100% annualized.

[Phaceliacapital]

Nice call, unfortunately missed this thread.